Saturday, April 19, 2008

St. Joes (JOE) Update

Since hitting the $27 mark in November, St. Joes, Florida's largest landowner has been on fire, hitting $47 in March before pulling back to $40 more recently. You may recall our August 7th post which questioned hedge fund manager David Einhorn's (Greenlight Capital) assessment of St. Joes and Einhorn's response, which we published word for word a few days later. While JOE is certainly well off it's bottom, and there have been some positive developments as of late, we don't see the stock breaching the $80+ level it hit back in 2005 anytime soon. While we still believe the company offers value, it may have gotten ahead of itself in the short-term.

St Joes is a bit leaner than it has been in the past, having shed its home building business, 780 employees, and it's dividend, to go along with some significant management changes. The company is now focused solely on land --not that it's a great time to be in that business, especially in Florida.

Still, JOE does own an impressive portfolio of 700,000 acres (that's more than 1000 square miles) as of February 2008, 310,000 of which are within 10 miles of the Gulf Coast. Now, as David Einhorn previously argued, not all of this is prime, quality land. In fact, during 2007, the company sold 105,963 acres of rural land for $161.3 million, an average of $1500 an acre.

Still, on an Enterprise Value to Acre basis (which puts no value on any assets other than land, and does include LT debt) that's $5100 per acre. If we assume, as in we did in our August 7th post that half of St. Joes land is worthless (which we don't believe to be the case) that puts EV/acres at $10,200. Certainly not as compelling in the midst of a difficult real estate environment, but it is if you believe there are better times ahead for Florida real estate.

In order for JOE shareholders to realize value, the company must ultimately convert its land into cash. The land -even the most rural- does have value, but ultimately, this land must be transacted. Recently, JOE has resorted to interesting (for lack of a better word) methods of doing so, offering 3000 acres in an online auction. Up for bid is land in three St. Joe properties-3,000 acres of recreational property in Gadsden County near Tallahassee, 56 acres in Port St. Joe, and 29.5 acres in Bay County near Panama City. We're not sure whether this represents desperation, or whether JOE is dipping it's toe in the water of a new potential distribution channel.

If there's been any good news lately for JOE, its been the Panama City Airport project--which is underway, and expected to open in 2010. Whether or not the airport will open the floodgates of tourists and homeowners to northwest Florida remains to be seen. But it does potentially strenghten the company's position.

Finally, St. Joes recently sold 17 million shares at $35. Secondary offerings are rarely if ever positive for existing shareholders and dilutive to earnings, but the proceeds should all but cover the company's $500+ million in debt.

We don't currently hold a position in St. Joes (our shares were called in March when the stock blew past our covered write). We still like the company though, and will be looking for a re-entry point, hopefully somewhere below the current price.

As for David Einhorn, we're not sure whether or not he is still short St. Joe's, but would again be willing to print a response from him.

*The author does not have a position in St. Joes. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.